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Patent Signaling of Startups Can Be Less Effective under Coarse Information

Title
Patent Signaling of Startups Can Be Less Effective under Coarse Information
Authors
HAHN, GUANGSUG and JOON YEOP KWON
Date Issued
2-Nov-2018
Publisher
Korean Finance Association
Abstract
We consider a patent signaling model for startup financing where an entrepreneur signals his type by acquiring patents and investors have coarse information about the entrepreneur’s true success probability. By invoking an extension of Cho and Kreps’ (1987) Intuitive Criterion adapted to our model, we obtain the least-cost perfect Bayesian equilibrium, in which a high-type entrepreneur may get a lower equity share despite of acquiring a higher level of patent than in the benchmark where investors do not face coarse information. This implies that coarse information faced by investors may lead to less effective patent-signaling than in the benchmark.
URI
http://oasis.postech.ac.kr/handle/2014.oak/97398
Article Type
Conference
Citation
Conference of Korean Finance Association, 2018-11-02
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 HAHN, GUANGSUG
Div of Humanities and Social Sciences
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